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Battling an explosion of unsecured credit and rising NPLs, Kazakhstan has moved to limit bank lending to retail customers.

Kazakhstan's central bank has ordered commercial banks not to allow customers take out loans that will require them to spend more than half their monthly income on repayments. The move is part of efforts to bring down non-performing loans and dampen rapid growth in consumer lending, after the latest data showed poor performance in the banking sector in January.

The National Bank of the Republic of Kazakhstan issued a resolution on March 6 saying that banks must examine all loans issued to a client within the last six months and calculate how much of their average income is spent on repayments. If the figure exceeds 50%, then the bank "does not make a positive decision," the central bank's statement says. The new rule is due to come into force on April 1.

The central bank also released data on the banking sector's performance in January which illustrated the extent of the issue. That showed that the share of 90-day overdue loans increased from 31.4% of the total loan portfolio at the end of 2013 to 32.2% in January.

"Despite different measures offered by the regulator, the Kazakh banking sector continues to see a high level of NPLs on balance sheets," says an analyst note from Visor Capital. "Moreover, after continuous deterioration in 2013, banks' bad loans increased further in January. Sector loan growth dynamics in January were very low, however we believe this was due to seasonality."

Kazakhstan has been increasing efforts to bring down the NPL ratio, which is partly a legacy from the lending boom that preceded the 2008-10 economic crisis. In November, the central bank introduced new targets, and is currently in talks with banks with the aim of lowering NPLs to 15% by 2015, and 10% by the following year. New legislation to make it easier for banks to write off bad debts, and for companies to declare bankruptcy, is due to be prepared by June.

At the same time, the boom in consumer lending accelerated during 2013. The International Monetary Fund (IMF) pointed out in June that the volume of retail loans was rising at around 40% a year.

However, recent events have only conspired to antagonize the situation. While some salaries have been raised following the 19% devaluation of the tenge on February 11, given the high proportion of foreign currency loans issued in Kazakhstan, borrowers are likely to face increasing difficulty in keeping up with repayments.